In his first industry appearance, Pabst Brewing Co. chairman C. Dean Metropoulos described to me in a fireside chat at our Beer Summit how one of his son's had circled a piece in the Wall Street Journal showing that Pabst was for sale. Having made 75 acquisitions over the last 25 years, many of them turnaround brands in consumer goods, Pabst piqued his interest and he made some calls. "There were about fifteen people looking at the deal," Dean told me. "I couldn't believe that a small company like this would have so many private equity guys after it....even Morgan Stanley. We were fortunate to prevail and be the final acquirers." Dean only owns 1% of the company, while his two sons -- Evan and Daren -- own the other 99%.
Why Pabst? "Harry, honestly we saw such huge potential with the individual brands. Such heritage! We've never encountered such a reaction to brands.....They're iconic. Last week somebody sent me a picture of Whitney Houston and Kevin Costner sitting in a bar with a Pabst sign behind them.... The brands are so intertwined and important in the culture. It's just great."
Dean described how his sons were instramental in turning about the Chef Boyardee brand when they were teenagers. "We had this $1.5 billion brand -- ravioli in a can -- but with sales declining 8 to 10% a year. We had these expensive ads that cost $850k to make of guys in the jungle surviving with a can of Chef Boyardee.... nothing helped. Then the boys saw a sign for WWF [pro wrestling] and said, 'that's who we need to partner with. That's our demographic.' It didn't register with me." He said they cut the deal with the WWF, had in-house studios shoot the ads for $125k with the wrestlers, and turned the brand around.
MANAGEMENT TURNOVER. Regarding the high turnover in management at Pabst, Dean said, "I've purchased many companies, many in pre-packaged bankruptcy. Looking at Hostess right now in fact..... When we bought Pabst, we knew we had to come in and change the culture.....make it more dynamic, entrepreneurial.....not everybody is right for this type of culture." He likened it to a team of Navy SEALS, which train nearby on Coronado, where 72% don't make it. "We have to act more quickly....we're not Bud or Miller." He indicated that sales trends have recently improved, as well as profits. In fact, EBIDTA has doubled since buying the company, he said.
That's not all. The sales team has been "totally revamped from the bottom up" and is strategically primed to utilize "guerrilla marketing tactics" that befits a company of their size. Their IT capability has also been vastly improved, he said. Regarding new president John Coleman, which they just hired from A-B, Dean said they had met him a year ago socially and as they "got to know him", were very impressed with his drive. "He's very hungry for execution....and he's not only a great new member of the family, but a great executive to lead the company."
ON ACQUISITIONS. Asked about acquisitions, Dean said he was open and eager to add to the portfolio -- perhaps in craft -- though the right deal hasn't turned up yet. He said he has spied an international acquisition that maybe would have limited synergies in the US. "It's a good time for financing," he said, adding that on a recent non-beer deal during the holidays about a dozen banks were vying for their business. "It's a good time to borrow money..... We'd love to acquire. To add to the synergies, spread the costs, and distribution efficiencies... we'd love to look at those. It's been difficult to figure out where to look.... But also, we would like to bring back some of these super brands that we already own -- the ones with a unique identity with constituent consumers. We don't yearn to be Bud or Miller. We yearn to be a strong grower with a close identity with our consumer base."
ON BLAST. I asked Dean that, given the sensitivity to high alcohol FMBs, in retrospect was it a bad time to launch Blast, particularly after the AGs got involved? "Harry, look, before the AGs took notice, there was a process of approval. Every state, and the fed government, approved the product from every angle and every step of the way... My only contribution to Blast was to put on the label that it was the 'ultimate cocktail', and they [TTB] took that off. But everyone had approved everything else throughout the process. So it somewhat surprised to me to get that reaction after six months of getting it approved." The brands are growing and will sell 2 million cases after a year in the market, he said. Fruit punch is the next flavor to launch.
THE SONS JOIN THE STAGE. We invited his two sons, Evan and Daren, to the stage to talk about some of their contributions, including their Nebraska Super Bowl ad buy (in a tiny market) to spark a viral video with actor Will Farrell peddling Old Milwaukee. Turns out the brothers are pretty articulate and knowledgable about beer marketing.
Describing the Old Milwaukee ads, Daren said: "We've had a close relationship with Funny or Die, Will Ferrell's sketch comedy website and he's a big fan of the brand. He loves the brand and when the idea came about he was very excited. We wanted it to be a very authentic and organic, not really a mainstream type of advertisement. We said lets go these places that are big Old Milwaukee towns and pay homage to these great towns. We kind of created a viral campaign. The power of social media. People have really gotten very excited about it. It was a great hit for us. He might pop up in some other towns, so be on the lookout.
Evan added: "The video has had about 2.5 million hits. But really it's part of a bigger strategy. Before we even bought the company we approached him, we had a relationship with him and FOD and they were super excited. Like our father said we don't have tremendous marketing budgets and people to excute, so we really leaned on Will to help us custom-tailor the program. He's completed about ten commercials and collectively about 2.5 million impressions on YouTube. It's refreshing to a piece of talent to refer to principals directly and not have a lot of red tape and layers and execute a vision that he was comfortable with."
ON LANDING THE PRO BULL RIDING SPONSORSHIP. Daren: "When we bought the company people told us they were synonymous with each other PBR and PBR. We thought it was a great way to integrate the brand. A lot of people think that the Pabst consumer is very niche, but it actually has a wide base of consumers. It was something that was very authentic, community driven and very local. We're doing great activation with 75 different events that are happening nationwide. We're doing these Pabst party zones where consumers can come and join Pabst and meet different bull riders. The bulls themselves are a big part of all of it as well. We're doing a special Blue Ribbon award for the meanest most badass bull out there coming to each event. It was really a natural fit. We have a lot of fiercely loyal and passionate consumers that like all kinds of sports. Beer is very local these days. We understand the communities that our brands live and breath in and we almost take it at a granular level to say, 'how can we tailor each program to each community'."
Evan added: "We like to associate with sports that...have a little bit of an oddball factor. Riding these bulls has got the danger factor, very obsessive fans and we felt it was not mainstream enough that would offend some of our more hipster drinkers. The reaction we've gotten from it has been huge; it really helps us target where our brands became famous years ago in the heartland. They're phenomenal partners, the type of people you want to do business with because they want their sponsors to sell more and they've been absolutely great in helping us do that. They have a passionate fan base and that's what makes it a passionate fit. Whether its bull riding, bowling or pumpkin chunking where they shoot pumpkins out of a machine, those type of oddball--I call them oddball but they're just a little less mainstream--are things that we're targeting. We're the official sponsor of the noodling festival where fisherman use their hands in pond-type water to catch fish."
Concludes Daren: "I say it all the time Harry, it's like finding an antique Ferrari that's been sitting in an old-timer's garage for 50 years and might have mice in it and cobwebs, its in extremely valuable piece it just has to be brought back to its luster, cleaned and restored. That's what we're doing. It's a fun process to find something with the type of upside that Pabst Brewing has."
WHAT ABOUT A CIDER? Says Evan: "We're from Vermont originally where cider and maple syrup are huge. We feel that innovation, whether its in cider or tea or even the flavored segment, which is a billion dollar segment and growing, is the future of a lot of taste palates. We have a younger demographic of 21+ drinkers and they want variety, maybe not just a typical lager. We think ciders and teas and a lot of these up and coming opportunities will be something that we play in. We're already currently working on a couple of niche opportunities amongst ciders.
CONSUMER CONFIDENCE IMPROVES IN FEBRUARY
On February 8 we reported on some encouraging consumer confidence numbers for the month at 69.5 and an expectation between 66 and 68 for the entire month. An update from Consumer Edge Research has the number at 64.6 currently. Although a backslide of five points from the beginning of the month the number is still an improvement from the 62.8 in January. As far as the different income groups go the high income group improved by 3 points, the middle income group improved by 1 and the low income group improved by 4. "The CER CEI is continuing to show a healthy rebound, now 20 points higher than just four months prior," according to Consumer Edge. They are estimating we'll finish out the month at 65, but "it is important to note" that their level of conviction in the Conference Board forecast "is much lower than before the restatement."
A-B'S VP SALES Dave Almeida sent a memo to distributors asking them to dress casual at their distributor innovation meetings next week in New Orleans. Sign of the times of how A-B has changed. He writes: "My team and I will be wearing jeans throughout the meeting and I invite you to join us by dressing casually. Although relaxed in our attire, trust we will bring aggressive retail execution plans..."
WALMART PRICE CUTS COST THEM. After the retail giant lost customers to the recession it decided to lower prices and expand its product range causing it to miss Wall Street expecations for Q4 earnings, reported Financial Times. Price cuts also lead to a 0.3% point fall in gross margins in the three months leading up to January 29 said the company's cfo Charles Holley. Sales did rise by 1.5%, but did not show "the acceleration that was expected," said Stifel Nicolaus analyst David Schick. Growth in the size of Walmart's inventories caused concern because it tied up cash flow and could force the retailer to increase discounts to clear the merchandise built up.
Until tomorrow, Harry
"Anyone who says businessmen deal in fact, not fiction has never read old five-year projections." -Malcom Forbes
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